Turkish Tax News
Diyadin YAKUT
21 March 2016Diyadin YAKUT

What are the nine investment benefits currently granted?

As briefly mentioned in previous articles explaining the principal aspects and basic working mechanism of the generous investment incentive system that was put into force with the promulgation of the Governmental Resolution on State Aids to Investments, there are nine types of investment benefits granted to eligible investors with differing combinations.

Whatever the ultimate outcome, an investment incentive system of this nature which covers virtually all possible benefits serves as a vivid demonstration of desire manifested by the Turkish Government to, inter alia, facilitate investing in Turkey and to be be able to push for its long-term targets.

Reduced Tax Rate
The rates of reduction to be applied to 20% statutory corporate income tax rate on income elements derived from business activities designated in an investment incentive certificate issued by the relevant authority as eligible to the corresponding benefit, range between 30% and 90%. Thus, the effective corporate income tax rate becomes fixed between 14% and 2% respectively after this specific benefit is conducted. The lowered rates are granted until the aggregate amount of tax forgone through this mechanism reaches a particular ratio (Rate of Contribution to Investment) to total investment which is specified by the concerned Article as well.

Social Security Contribution Aid (Employer’s Share)
According to the Resolution, social security contributions corresponding to employer’s share is covered by the government provided that those amounts of contributions are related to extra job creation within the scope of a large scale, regional or strategic investment incentive certificate. Yet, the social security contribution covered by the government is subjected to certain limitations with regard to duration of implementation, base value on which the amount of contribution calculated and ultimate total amount to benefit. Investors are eligible to benefit this particular incentive up until 10 years and to 50% of the total investment based on which investment zone they invest and which investment incentive scheme (regional, large scale and strategic investment incentive schemes) they are included. The base value on which contributions are calculated, on the other hand, is limited to minimum wage specified by the relevant regulation for the year concerned.

Social Security Contribution Aid (Employee’s Share)
Similar to the benefit with respect to employer’s share, social security contributions employee’s share which is normally paid by employers (investors here) to Social Security Institution on a monthly basis, is covered by the government provided that some certain conditions are met. Social security contribution employee’s share calculated on the minimum wages of additional workers hired due to investments undertaken in 6th Investment Zone, is covered by the government for 10 years as long as the investment fall into the scope of regional, large scale or strategic investment incentive schemes.

This generous benefit, together with employer’s share support, is implemented, provided that the concerned investor submit the required monthly premium and labor-related documents to Social Security Institution and pay the amount of contributions uncovered by the government in due time in compliance with the relevant provisions of Social Insurance and Universal Health Insurance Law numbered 5510.

Income Tax Witholding Allowance
Available to all four types of investment incentive schemes cited before but specific only to 6th Investment Zone, income tax witholding aid mechanism works in the form of an official cancellation  of the personal income tax accrued on the minimum wages of additional workers hired due to an investment favoured by the related investment incentive scheme.

The Aid With Respect to Interest Paid on Loans
Interest paid on loans borrowed to finance investments falling into the scope of regional and strategic investment incentive schemes is covered by the government with varying degrees and this particular incentive is implemented in the following way:

  • The loan shall have a maturity of at least one year
  • The amount of loan on which interest is calculated and thus paid by the government shall not exceed 70% of the total investment
  • The incentive can be benefited maximum for five years
  • The amount of interest beard by the government shall not exceed 900,000 liras in regional investments and 50 million liras in strategic investments.

Land Allocation
In line with the Article 3 of Law number 4706, lands that belong to government are allocated to the investments which are carried out within the scope of investment incentive certificates issued for a regional, large scale or strategic investment upon the request of investors.

VAT Refund
Investors with strategic investments exceeding 500 million liras can get back the input VAT calculated on their construction-related expenses.

VAT Exemption
Investors that benefit from this measure do not pay any VAT on imported or domestically delivered machinery and equipment which are expected to be directly related to encouraged investment.

Customs Duty Exemption
All machinery and equipment imported to carry out an investment covered by any investment incentive scheme will be exempted from customs duty.

Whereas, it is early for the full impact of the incentives granted to date to become evident; it will be, yet, exciting to see how the whole process evolves and market players, both domestic and global, react to these generous benefits granted by the Turkish Government with respect to amount of money poured into the most deprived regions(in which investments are seen as overriding public interests) and most preferred types of investments, namely the 6th Investment Zone and large scale and strategic investments.

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